CA Trust, Estate & Probate Litigation

CA Trust, Estate & Probate Litigation

Great California Trust and Will lawyers need great judgment

Posted in Litigation

 

Good Lawyers need Good Judgment

Law is a subjective pursuit. Only after everything is said and done can you look back and diagnose the good and the bad. But when you are in the heat of battle on a lawsuit, there rarely are any clearly right answers…or clearly wrong answers for that matter. Sometime you just have to jump off a cliff and hope for the best.

Presenting your case in a court of law is highly subjective. Ultimately, only the viewpoint of the judge or jury matters, and their viewpoint may be very different from your own. Remember that you have lived with your case for years before it ever sees the light of day at trial. In some Trust and Will cases, the family issues have taken decades to develop to the point where litigation starts. There is no way a judge or jury will understand or see the issues from your perspective…not completely.

The goal then is to exercise good judgment to decide how to present your case at each stage of the litigation. By the time you get to trial, you should know a lot about the evidence you have, the witnesses you have, and (more importantly) the evidence you do NOT have. You should also know the facts, witnesses, and documents the opposing party has as well.

The mistake many parties make is to take ALL the facts, witnesses, and documents into trial to present to the judge or jury. That can be a BIG mistake. Trying to deluge a judge or jury with too much information is a great way to paralyze them from making any decision.

The better approach is to narrow down the information to the most important issues you want to address. You don’t want to carpet-bomb the court, you want to make a targeted strike that will get to the heart of the issues you care the most about.

For example, if you want to have a Trustee removed, focus on the facts that support removal, but do not focus on facts that have nothing to do with removal (such as the Trustee’s DUI from twenty years ago, or their ten-year-old bankruptcy filing). Facts from the distant past rarely persuade a judge to take action NOW. For Trustee removal, you need facts that show imminent danger will occur if removal is not granted.

Moreover, you really need to pick your top three strongest arguments and go only with those three points. And then drop two of them. It sounds silly to narrow you case to a single point, but the beauty of simplification is that it makes decisions simple. The problem with simplification is you must exercise good judgment to decide which arguments to focus on. Plus, it takes a lot of work to figure out which claims are the best versus the worst.

Judgment makes all the difference when it comes to simplification. And without simplification, your case is sunk because confusion causes paralysis in decision making.

Legal Loopholes: How California Trustees Escape Liability

Posted in Trust Administration, Trustee Breach of Trust, Trustee Removal

Will your Trustee

You may be surprised to learn that there are a number of ways that a bad Trustee can escape liability in Court. For starters, if the Trustee disclosed a questionable transaction in writing to you, you only have three years in which to file a lawsuit. But that’s just the start.

Consent, release, and exculpation come next. If you consented to a transaction before it was taken, you may have waived your right to complain about that transaction in the future. The same applies with a release, if you signed a release of liability, then you may have waived any lawsuit against the Trustee for wrongdoing. Luckily, both consents and releases require that you be given full disclosure of all material facts and circumstances surrounding a transaction; otherwise the consent or release is invalid.

And then we come to exculpation. Exculpation is a terrible Trust provision that says a Trustee does not have to take responsibility for being negligent with Trust property. That means a Trustee can violate any of his or her duties as Trustee, and there is nothing you can do about it. There is one catch, every Trustee is still liable for gross negligence, recklessness, and intentional harm. But each of those claims are harder to prove than basic negligence. In order for exculpation to work, the Trust has to specifically provide for it in the Trust document. Most people who create Trusts that contain an exculpation clauses have no idea the clause is there or what it even means.  Unfortunately, exculpation can cause more harm than good to the Trust assets.

Finally, there is good-old fashioned equity. If all else fails to let a Trustee off the hook, the Court is authorized, in its discretion, to excuse any Trustee wrongdoing. Probate Court’s are courts of equity, meaning they do not just apply to the law, they also are given wide discretion to determine what is fair and reasonable in a given situation.  If a Trustee has breached a legal duty to the Trust and caused damage, the Court still has the power to excuse the Trustee’s breach if the Court believes it fair to do so.  This can be a huge loophole that allows Trustees to escape legal liability for their mistakes.

The bottom line: it is not so easy to hold a Trustee accountable.  There are many ways in which a Trustee can escape liability even where harm is caused to the Trust assets.  That means it is up to you to build your case, and tell your story to the Court, so equity falls in your favor instead.

It You Got ‘Em…Flaunt ‘Em: A California Trustee’s Duty to Use Special Skill

Posted in Trust Administration, Trustee Breach of Trust, Trustee Removal

What's your-2

“If you got it, flaunt it baby!” That’s one of my favorite lines from the movie The Producers by Mel Brooks. The same can be said of California Trustees (although not referring to their looks of course). For Trustees, if you have a special skill you are expected to use them.

For example, if you are an expert in investing, then you have to use those skills for the advantage of the Trust. And you will be judged based on your increased skills if anything should go wrong.  If you are a CPA or lawyer and you undertake Trusteeship of a California Trust, then you will be expected to use your professional skills to administer the Trust.

For example, lawyers should have a higher degree of knowledge of the Trust laws, especially Trust lawyers. So when a Trust lawyer acts as Trustee, those skills must be used. And if anything goes wrong, the Trustee will be judged based on a higher standard of skills than an ordinary Trustee.

Having a Trustee with special skills that helps in Trust administration is a great idea. For example, a Trust that is heavily invested in commercial real estate would do well to have a Trustee who is skilled in commercial real estate. Settlors oftentimes look for this type of expertise when selecting a successor Trustee.  Or at least they should look for this special skill when selecting a Trustee.  After all, many Trust lawsuits involve Trustees who did NOT handle Trust investments properly because they simply did not know what they were doing.

But that extra level of skill comes with a catch—a higher expectation under Trust law. So if you are an expert, you must be aware that your expertise can be a benefit to the Trust, or a burden to you if things go wrong.  You are not going to be judged as your average-Joe Trustee, but as your highly skilled Trustee.

The best protection against a lawsuit for a skilled Trustee (or any Trustee for that matter) is to have a process in place that you use to mange the Trust assets and make decisions.  The exact details of the process are not as important as having a process at all.  So many individual Trustees will make decisions and invest assets without any written game plan.  When investments take a dive, the Trustee is immediately accused of making a mistake and with no written process in place, the Trustee has nothing to point to as being the basis for the decisions that were made.

Having skills is a mixed blessing.  It is great for the beneficiaries, when those skills are put to good use managing the Trust assets.  But when things go wrong, those same skills may create a higher threshold to escape legal liability than would otherwise apply.

The Downside Of Co-Trustees In California Trusts

Posted in Trustee Breach of Trust

Is your co-trustee

Acrimony between Co-Trustees can raise significant problems. Co-Trustees each have a duty to participate in the administration of the Trust (PC 16013). A Co-Trustee also has a duty to prevent the other Co-Trustee from committing a breach of Trust, and compel a Co-Trustee to repay damages caused by a breach of Trust.  That can be a tall order when dealing with a difficult Co-Trustee.

Let’s start with participation. Each Co-Trustee has an affirmative duty to participate in the administration of the Trust. That makes sense in theory because there is no reason to have two or more Co-Trustees if any of them refuses to participate (might as well just name one Trustee).  But in practice it may be difficult for two Co-Trustee to participate, especially if they do not get along. This happens quite a bit when two siblings are appointed as Co-Trustees. There can be (in some families) a built-in animosity between the parties that causes the Trust administration to stand still.

Worse yet, if one Co-Trustee actively tries to exclude the other Co-Trustee from participating, then this duty to participate is impossible to meet. In most cases where two or more Co-Trustees cannot get along, one of them has to go.

This brings us to the next part of the duty, to stop a breach of trust. That can be a real problem when you have a runaway Co-Trustee. Difficult Co-Trustees are not so easy to control, let alone preventing a breach. In most cases, the only way to stop a breach is to file in Probate Court and seek an order against the Co-Trustee. And as long as you continue to be a Trustee, you have an affirmative duty to take action—including Court action—if necessary.

The same is true of a Trustee’s duty to force a Co-Trustee to pay back any damages caused by a breach. In most cases, Court action will be required to accomplish this duty. Most Co-Trustees who cause harm to a Trust are not going to pay for the damage willingly. It does happen at times, but more often it is a lawsuit waiting to happen. But happen it must, because a Co-Trustee has a duty to seek the repayment of damages.

It is not so easy being a Trustee, and that is especially true of Co-Trustees. It is important to know your duties, and then keep a watchful eye on your Co-Trustee.

The Buck Stops…Where? California Trustees duty NOT to delegate

Posted in Trustee Breach of Trust

harrytruman

Funny thing about Trustees, they are expected to seek help, just not too much help.  Generally, Trustees are not allowed to delegate their duties (see Probate Code section 16012).  The rules state that anything the Trustee can “reasonably” be required to personally perform cannot be delegated.  And the Trustee can never delegate the entire administration of the Trust to someone else.

Where a Trustee does delegate some matter to an agent or co-Trustee, the Trustee still has a duty to supervise that person in the performance of the delegated matter.  That means a Trustee cannot simply delegate and forget about it.  The Trustee is required to oversee the agent and make sure that the job is being done in the best interests of the Trust.

There is one big loophole this the nondelegation rule: investment and management decisions.  Under the Uniform Prudent Investor act, a Trustee has the power to delegate certain financial decisions (see Probate Code section 16052).  This exception allows a Trustee to delegate financial decisions “as prudent under the circumstances.”  But the Trustee retains the duty to (1) select a good agent to act for the Trust, (2) establish the scope and terms of the delegation, and (3) periodically review the agent’s performance.

Here’s where things get interesting.  Where a Trustee has properly delegated financial decisions to an agent, the Trustee CANNOT be held liable for those investment decisions.  That can be a shocking result for a beneficiary who seeks to hold a Trustee liable for bad investment decisions.  Of course, the agent to whom investment decisions were delegated can be held liable for bad investment decisions.  But that just means the beneficiary may find himself suing a large financial firm rather than the Trustee.

The good news is that financial advisors rarely will agree to accept delegated financial responsibility for a Trust–primarily because of the liability involved in doing so.  Yet, so often Trustees who make bad investment choices will try to pass the buck to the financial advisor.  It then becomes the beneficiaries job to determine whether the investment power was delegated or not.  It could mean the difference between suing a Trustee or suing a large financial institution.

If you happen to be a Trustee, choose your delegation wisely.  Even with the job being handed off to someone else, you may still be on the hook for a bad decision.

 

Duty To Defend: A California Trustee Must Defend The Trust

Posted in Trustee Breach of Trust, Trustees & Beneficiaries

bakery

As Trustee, you have a duty to defend the Trust in actions and lawsuits filed against it. This duty is the flip side of a Trustee’s duty to enforce claims, where a Trustee must sue to enforce a debt owed to the Trust.

The duty to defend requires the Trustee to take all reasonable action to protect and preserve the rights of the Trust. If a lawsuit is filed against the Trustee, then the Trustee must act to defend that lawsuit. Of course, the Trustee is allowed to use Trust monies for this purpose. And we generally want Trustees to do that so a proper defense can be paid for by the Trust.

Unfortunately, the Trustee’s ability to pay for a defense from the Trust funds can work against a beneficiary who is suing the Trustee. It is one thing for the Trustee to defend a lawsuit from an outsider, but to use Trust money to defend a lawsuit brought by a beneficiary is not so good. Yet that is the scenario faced by nearly every beneficiary suing a Trustee.

The court does have the power to surcharge a Trustee who wrongly uses Trust funds to defend themselves.  A surcharge is just a judgment against the Trustee personally that must be paid to the Trust.  While this sounds promising to suing beneficiaries, it presents two large problems: (1) this determination only comes at the END of a lawsuit (meaning a Trustee can use money during the suit), and (2) courts rarely make a finding of personal surcharge.  Why no surcharge?  Because the court has wide discretion to decide when and if the Trustee wrongly spent Trust money on legal fees.  And California courts tend to be conservative when requiring a Trustee to pay back legal fees.

Bottom line: only in the most egregious cases will a personal surcharge against a Trustee be imposed.  Of course, you can still ask for a surcharge, just don’t count on that happening any time soon (if it happens at all).

In the meantime, any third-parties who sue the Trust are in for a fight…assuming the Trustee lives up the the very important duty to defend the Trust.

When You Must Sue: Trustees’ Duty to Enforce Claims

Posted in Trustee Breach of Trust, Trustees & Beneficiaries

The Enforcer

You have no duty to sue, it’s true. If someone owes you money and you don’t want to go to the trouble of collecting it, or suing for it, you have the right to just let it go by the wayside. It ‘s your money and you have the right to give it away.

Not so with Trustees! Trustees are required to enforce all legally enforceable claims a Trust has against any party. If there is money owed and the debtor refuses to pay, the Trustee has to take action. If there is a mortgage on real property and the payments stop, then the Trustee must foreclose.

The Trustee does not have the luxury of allowing a debtor to walk away from a Trust debt. Why? Because the Trustee is in charge of other people’s money. So even though the Trustee personally may not want to sue, there is an affirmative duty under California law for the Trustee to take action.

The duty to enforce claims does not mean, however, that a Trustee must spend more to enforce a claim than it is worth. For example, if someone owes the Trust $100, it makes no sense to spend $20,000 on legal fees to collect it. It may make some sense to write a letter, make some calls, or file a small-claims lawsuit. But that all depends on the amounts involved.

The bottom line: if you are a Trustee you have a duty to stand up for the rights of the Trust beneficiaries.  It is the beneficiaries’ money, so Trustees have a duty to sue.

Explain Yourself: Trustees’ Duty To Identify Trust Property

Posted in Trustee Breach of Trust, Trustees & Beneficiaries

Identify

Quick piece of advice: if you do not like bookkeeping, don’t be a Trustee. It takes a good deal of time and effort for a Trustee to properly keep Trust assets, separate, and identified. Not only that, but every expense you have, every bill you pay, must be documented with a receipt.

Why all the details? It mainly is required because you are managing someone else’s money. That means at some point you will be called upon to account for your actions as Trustee. And any good Trust accounting will show the beginning assets, the income, the expenses, and the assets on hand at the end of the accounting period. While it is not difficult to keep assets separate and identified, it can be time consuming.

But in the end it is the best way to prepare an accounting. If you start moving Trust assets around and mixing them with your own money, then it can be quite difficult to account for your actions. Not only that, the beneficiaries will demand to see your personal account statements if you have commingled funds into your personal accounts.

If you are crazy enough to take on the thankless job of being a Trustee, then do yourself a favor and make sure your money and the Trust money remain separate and apart.

Working For a Living: Trustees’ Duty To Make Trust Property Productive

Posted in Trustees & Beneficiaries

Putting Assets to work

Trust property must be productive. But what does that mean exactly? Well if you have rental real property in a Trust, it needs to be rented. If you have cash in a bank account, it needs to be invested. If you have a car that no one drives, it needs to be sold. And if you have pink flamingoes, well you get the idea.

The point here is that Trust property cannot simply sit around gathering dust. As a Trustee of a California Trust, you have an affirmative duty to take control of Trust property and put it in a position to produce something. Assets have the potential to produce income, appreciation, or both. And having the assets grow and generate income is one of the basic requirements for any Trustee.

Luckily, the Trustee is not expected to know how to do all of this on his or her own. The Trustee has the right to hire professionals to help advise on decisions as to what to do with Trust assets. For example, if you have rental real estate, the Trustee can hire a property manager to rent it. Or hire a real estate broker to list the property for sale. If you have cash assets that need to be invested, then a certified financial planner can be hired to advise on a proper investment portfolio.

And if the Trust currently has invested assets that are not doing well, then the Trustee has a duty to sell the bad stuff and buy into a better portfolio.

In the end, it is the Trustee’s responsibility to build the Trust assets into something better for the beneficiaries to enjoy in the future.

A Precious Resource: California Trustees Must Take Control And Preserve Trust Property

Posted in Trustees & Beneficiaries

Preserve

One of the most important financial duties of a Trustee is to take control of all Trust assets and act to preserve those assets from loss. This can mean different things in different situations. For example, if you take over a Trust with a volatile stock portfolio, you may have a duty to sell the risky stuff quickly and preserve what is there for the beneficiaries.

When it comes to real estate, you have a duty to secure the property, purchase insurance, and either make the real property productive by renting it, or sell it for the fair-market-value.

And the list goes on and on depending on the assets involved and the problems encountered. The one consistent in administering Trusts is that nothing is ever consistent. Each Trust presents its own problems and roadblocks. The key, however, to living up to this duty is to take the risk out of the equation. Just because the Settlor invested in risky assets does not mean you are allowed to do so as Trustee. Or just because the Settlor allowed a house to sit vacant with no renters and no insurance does not mean you can do the same.

As Trustee you have an affirmative duty to act to protect and preserve Trust assets. You have to lock up the Trust property and keep it safe until the time comes to give it out to the beneficiaries.

The best approach is to gain control of all Trust assets, and then confer with a financial professional to determine the best way in which to invest or hold the assets until time of distribution. For some Trusts, the time to distribute comes quickly, for others it comes later. Either way, a proper plan is required to ensure the assets are preserved for their ultimate owners—the beneficiaries.

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